CMHC EXAMINES 1970S TAX SHELTER AS AGENCY SEEKS SOLUTIONS TO RENTAL CRISIS
Canada’s housing agency has reached back nearly five decades to examine a long-abandoned tax shelter that was aimed at spurring the construction of apartment buildings, as it analyzes how to deal with the “persistent undersupply” of rental housing in the country.
On Thursday, the federal Liberal government announced it was immediately lifting the GST from the construction of new rental apartments, a move developers have long called for.
But internal records show the Canada Mortgage and Housing Corporation recently reviewed another kind of tax measure, one that was introduced in 1974 and ended in 1982, and which rewarded often wealthy professionals with tax deductions when they invested in housing.
“Many housing stakeholders suggested that to promote investment in new rental construction and restore affordability, the federal government should reconsider the tax policies previously in place in the 1970s, particularly the MURB,” said a briefing note that was sent to Housing Minister Sean Fraser and was released under access-to-information laws.
The MURB scheme allowed investors to claim depreciation and certain other costs of an apartment building against unrelated income. It was credited with encouraging the construction of about 195,000 units at a cost of $2.4 billion in forgone taxes, although the CMHC said there are some questions about the program’s true influence.
The CMHC noted there was no affordability requirement. It also said there were reports of “many abuses,” including investors only buying buildings as tax shelters and a lack of oversight that in some cases led to poor construction.
Some parts of the briefing note are redacted, and it’s not clear whether the CMHC endorses or disapproves of reinstating the program in some form. The agency, which declined to comment, also notes that taxation is the purview of the Finance Department.
“Since the elimination of the MURB program in 1982, tax policy in relation to rental housing development has remained largely unchanged and current tax regulations are less favourable to rental investment than have been historically,” the briefing note said.
A spokesperson for the office of the federal housing minister said in an email that Fraser, who is also the MP for the Nova Scotia riding of Central Nova, had been sent the briefing note, but did not indicate whether some form of the MURB program is being considered.
“We are focused on identifying and rapidly implementing the solutions needed to tackle the housing crisis head-on, including measures that will change the financial equation for home builders to promote the large-scale construction of more affordable rental housing,” the email said.
The briefing note said up to 100,000 rental units a year were built during the late 1960s and early 1970s, a number that is still higher than the level today, despite the housing crisis in cities such as Halifax.
In a report published Wednesday, the CMHC said “urgent action” was required to increase housing supply. It found that by the end of the decade the country needs nearly 3.5 million more units on top of what’s already being built in order to “restore affordability.”
Peter Polley, a developer in Halifax, said the MURB scheme was used to construct a “significant number” of apartment buildings in the city in the 1970s, although he doesn’t believe it’s a solution to today’s supply issues.
Mike Burgess, a Dartmouth, N.S., landlord who owns 77 rental units spread over 11 buildings, said rising insurance costs, power rates and property taxes means he’s struggling to break even, “let alone be worried” about making a taxable profit.
He said various levels of government should be paying more attention to helping “mom-and-pop” landlords, which he worries are being squeezed out in favour of large operators like real estate investment trusts.
“Historically, a good portion of the population had some rental properties. It was a retirement income for them. They know all of their tenants and just wouldn’t raise rents every year,” he said.
A 1981 report for the CMHC found the MURB scheme attracted “many private investors” to rental housing. It was “widely used by professionals and other high-income individuals to reduce income taxes on their employment earnings.”
For some, it was a bad decision.
“There is evidence that some promoters may be overvaluing projects,” the report said. “Investors, who tend not to be conversant with real estate matters, generally are purchasing the asset solely on its tax shelter aspect with no recognition of possible poor investment prospects due to inflated purchase prices.”
Story by: CBC News